County pension charts path through risky waters

Fixed-income bonds have been good investments for several years. But market watchers see an end coming for the bond bull run — which could be bad news for a leverage bond portfolio.

“People who are skeptical of risk parity strategies say you’re levering up bonds right at the point where bonds are kind of at the peak of a cycle,” says Charleson, the Morningstar analyst.

In addition to leverage, SDCERA has a sizable percentage of the total fund tied up in alternative investments. Twenty percent of its money is allocated to hedge funds. The 1,000 largest public pension funds nationwide on average had less than 4 percent of their money in alternative investments, according to Pension & Investments, an industry research publisher.

Activists who study public pensions say there is an inescapable link between profits and risk, and say earning higher returns is not possible without taking more chances.

“There’s no way to avoid the relationship between risk and return,” says Dan Pellissier of California Pension Reform. “People who invest money on the taxpayers’ behalf should be more conservative than they are in their private life because the only way to make up for losses is through taxes.”